It has been part of the received wisdom of modern economics that subsidies are bad. Economists from developed countries, and who man the international financial institutions, rail against them virtually as a matter of course. Thus it was a pleasant surprise to hear State Bank Governor Yaseen Anwar say that unless the subsidy on electricity was not increased, inflation could rise. He said this in the course of an informal chat with the press in Karachi on Saturday. He even put a figure on inflation, saying that it could rise to 10.5 or 11.5 percent. However, he did not give a figure of how far he thought the subsidy should go up. He did say that the average price for electricity was Rs 8.50 per unit while the cost was Rs 14 per unit. That implies a subsidy of Rs 5.50 per unit, which the government is committed, under the IMF package terms, to eliminate.

This should show, merely as an example, that the IMF pursues policies which cast governments as anti-growth, and anti-people. People not only find the present power bills onerous, but cannot face a tightening of the screw in the shape of higher inflation. Yet that is exactly what the IMF has got the government to agree to. The inflationary effects of cutting back on subsidies has not been sufficiently explored, particularly its negative effect on growth. The government claims to have agreed to the IMF conditions so that it would take the country to a high-growth trajectory. If they lead to strangling what will be at best a fragile recovery, at least initially, then the government will have every right to be disappointed.

It almost seems, if one examines the IMF’s track record with successive governments, of all stripes, one would form the impression that there is a conspiracy of silence at work. The IMF talks much about the need to widen the tax base, but pays virtually no attention to how the government, on one excuse or the other, refuses to impose the income tax to agriculture. While it undoubtedly suffers shortages of money because of this, it keeps the agricultural interest on its benches, the overwhelming majority, happy.

The government has an obligation to make the IMF reconsider the question of subsidies, not on humanitarian grounds, which it does not recognize anyhow, but on economic. If the country is to repay the IMF loan, it would best be done by sufficient economic growth. For that, the power crisis must end. And the subsidy continue.